Western Lighting Warehouse has a July 31 fiscal year end and uses a perpetual inventory system with the earnings approach. An alphabetical list of its account balances at July 31, 2024, follows. All accounts have normal balances.

Additional information:
1. All adjustments have been recorded and posted except for the inventory adjustment. According to the inventory count, the company has $40,000 of merchandise on hand.
2. Last year Western Lighting Warehouse had a gross profit margin of 40% and a profit margin of 10%.

Instructions
a. Prepare any additional required adjusting entries and update the account balances.
b. Prepare a single-step income statement.
c. Calculate gross profit margin and profit margin. Compare with last year’s margins and comment on the results.
d. Prepare the closing entries. Post to the Income Summary account. Check that the balance in the Income Summary account before closing it is equal to profit for the year.

Taking It Further

What kind of information do the gross profit margin and profit margin provide to a user of the financial statements?

Transcribed Image Text:

A. Jamal, capital A. Jamal, drawings Accounts payable Accounts receivable Accumulated depreciation-equipment $166,500 39,600 7,600 38,900 33,400 Interest payable Interest revenue Merchandise inventory Notes payable Notes receivable $ 575 3,000 41,250 46,000 75,000